Top Picks – Funds Selection – October 2023

In this selection, we’ve highlighted funds in the list that could align with your interests. These funds have recently exhibited exceptional relative performance that is anticipated to continue, or they may present potential to yield appealing returns or diversification, especially considering the prevailing market conditions.

September witnessed pronounced weakness across all major asset classes and regions. The prospect of enduring higher interest rates significantly impacted risky assets and long-term government bonds. Corporate bonds also faced challenges, reflecting worries about global growth and corporate earnings.

Sector-wise, energy emerged as the top performer, benefitting from the OPEC’s cuts to global output, which prompted a notable surge in oil prices. This upward trend adversely affected actively managed equity funds, especially quality growth strategies typically underexposed in this sector. Conversely, value-oriented funds delivered the strongest performance last month.

Hence, alpha generation has been very scarce in equities, our fund selection struggled to deliver positive relative returns.

Equity Funds

Within Global Equities, Threadneedle Global Technology fund (+185 bps) and Goldman Sachs Global CORE Equity fund (+145 bps) were the noteworthy exceptions.

In EM markets, Artemis SmartGARP Global Emerging Markets fund (+218 bps) continue to deliver very satisfying results. The value bias in the fund remains substantial, with a 44% discount to the market (P/E of 6.5x vs. 11.7x for the index). The fund continues to offer an attractive combination of extremely low valuations and attractive growth prospects The portfolio remains overweight China, Brazil and Turkey and underweight India, Taiwan and Saudi Arabia. At the sector level, financials, consumer discretionary and energy feature as the largest overweights. Materials, semiconductors, media and entertainment are the largest underweights. More globally, EM stocks remain cheap and unloved but pessimism is now well reflected in prices.

Fixed Income Funds

In choppy markets, AXA WAVE Cat Bonds fund (+24 bps) proved to be again a very good diversifier and satellite for a balanced portfolio. The strategy exhibits the best performance (+12,3%) since the beginning of 2023 and it proved to be a very resilient investment.

Elsewhere in fixed income, TCW Unconstrained Bond fund outperformed in September (+62 bps), benefitting from its more cautious positioning and outlook. Rising interest rates and an inverted yield curve historically signal a recession. TCW believes we are heading for a ‘hard landing’ scenario that could occur as early as the first half of 2024, and anticipates a swift and aggressive reaction from the Fed once the economic slowdown becomes clear. Hence, the duration and quality has been increased in the portfolio, to seize the coming opportunities that will arise with the recession. A flexible and muti-sector strategy is definitely a sound approach to navigate fixed income market in this context.

Vontobel Emerging Markets Debt fund (+88 bps) also confirmed the quality of our fund selection in this area for several months now.

Multi Asset Funds

Finally, Janus Henderson Global Multi-Strategy fund (+97 bps) was our best fund in Alternative UCITS space, providing the expected downside buffer and the adequate decorrelation.

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*Performance figures in bracket are monthly alpha compared to respective funds’ benchmark, not absolute performance.

All the mentioned funds are exclusively extracted from our OpenList service, a fund selection list for use by Wealth Managers in Switzerland.

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